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Is now some agreement between the White House and the Republicans both sides appeared to be willing to consider taxing at least a portion.
A municipal bond address paid a higher income house -- That could spell big trouble for debt ridden California.
They need to sell a lot of meaning -- More on that from David Crane former economic advisor to California's Governor Arnold Schwarzenegger what happened to California because.
-- -- needs to issue and sell municipal bonds at low rates very easily.
Is got to -- California.
Well good morning -- -- California does need to issue debt but this particular piece of legislation would not hinder its ability at the state level -- to issue debt.
It would increase the cost to the state what many top artist -- -- it not.
I'm sorry make it tougher to sell -- you would still have buyers.
Of the -- you have to remember in California is system.
Debt is very senior there's a waterfall a few well.
And so debt has about eight times coverage in the California system so they can sell more debt and they can sell lots of debt the cost would go up a -- But the burden and that costs would mean a reduction in services to people below.
The seniority of that -- so would mean.
Let's say that the spread was an additional 1%.
For every billion dollars that they issue with an extra ten million dollars of cost.
That ten million dollars would come out of services parks courts.
University of California California State University.
Environmental protection that sort of thing that it would hinder the ability of the state to issue debt.
They can continue to issue that.
And that's one of the reasons that debt as what was the debt that they've issued in connection with pensions.
And retiree health care which is a similar form of debt.
Those consequences just squeeze people at the lower levels really really defenseless citizens get hit when the sort of thing happens.
Well if you reduce the in the amount that you can ride I did basically the deduction that you get from -- -- for so the that -- that you might -- actually hit pay some tax audit the federal level I suppose.
That would be offset by.
38 which just got passed in California.
That it would continue to make municipal bond debt attractive in that state because you've got now -- will have.
A top tax bracket including federal of 53%.
If the tax rates -- -- where they were in the Clinton administration.
Yeah it just means a higher cost to the state for issuing the debt but it doesn't hinder the ability the speak issue -- it's not and it's deducted.
It just means it's not taxable currently.
-- some of that income becomes taxable.
It's -- -- building America bonds that are now issued by states.
Which are taxable -- federal bubble there's an increased interest expense but again the state can issue they've got the consequences fallen defenseless people.
And that's really the negative consequence.
Of any sort of changed today.
Exemption or not exemption of taxable income at the federal level.
What do you think though is the ultimate consequence.
Of now taxing.
People -- 53%.
In California and making it retroactive by year.
You know I will tell you that the big issue for people like me.
In paying higher taxes in California.
Is not so much paying higher taxes it's where the money is going.
And the fact that the we have a fifty billion dollar tax increase in California and all of that is gonna go -- off balance sheet debt.
Which hasn't been disclosed to the citizens have about 500 billion dollar for the off balance sheet debt in the form of unfunded pensions unfunded retiree health care.
And you also have.
Number of accounting mechanisms that have been used to shield from the citizens the real size of the California budget that's where the money is going and that's more.
Annoying than just paying higher taxes paying higher taxes when you know that the benefits are going to your fellow citizens.
Especially when you have slow economic growth is not a problem for someone like me but having the money just to -- pay off past debts.
While not reforming the system might -- gave rise to those past debts.
Is deeply annoying and I think it's a serious problem for California.
And you know some people will leave of course but it's a very difficult place to leave and people like me love it out here.
Would rather stay -- fight and so it will be negative consequences.
And we just have to fix these problems that are.
David thank you good to save David Crane be well.
Thank you we're gonna.
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